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U.S. stocks fell across the board as tensions between the United States and Iran escalated and concerns over artificial intelligence (AI) investment resurfaced.
On Aug. 23 (local time), the Dow closed 0.97% lower at 51,711.65, the S&P 500 fell 1.21% to 7,408.30, and the Nasdaq slid 2.15% to 25,137.69.
Rising tensions in the Middle East, which pushed international oil prices above $100 per barrel for the first time in about two months, weighed on investor sentiment. Brent crude futures for September delivery closed at $100.69 per barrel, surging 7.04% from the previous session. West Texas Intermediate (WTI) for September delivery also rose 6.17% to $92.19. Brent hit its highest level since May 22, and WTI since June 4.
The Houthi rebels, who had earlier declared a naval blockade against Saudi Arabia in the Red Sea, said they attacked two Saudi oil tankers attempting to pass through the Bab el-Mandeb Strait, a key Red Sea gateway. In a media interview, U.S. President Donald Trump said he was considering a large-scale attack against Iran. Trump stressed, "We are right before making the (attack) decision," adding, "We have completed all preparations." Goldman Sachs said in a report that if disruptions in the Bab el-Mandeb Strait continue, Brent crude could exceed $120 per barrel in the fourth quarter and average $100 next year.
U.S. Treasury yields also rose amid growing expectations that higher oil prices could ultimately lead the United States to raise interest rates. The yield on the 10-year U.S. Treasury note broke past 4.7%, reaching its highest level in a year and six months since January last year. The U.S. futures market currently puts the probability of the Fed raising rates in September at 82%, sharply up from 52% a week earlier.
Alphabet, Google's parent company, saw its shares plunge 7.13% after it raised its annual capital expenditure forecast for this year from $180 billion–$190 billion to $195 billion–$205 billion to meet steep AI demand. Tesla, which posted weak second-quarter earnings, dropped 14.52%. Meta fell 3.36%, Microsoft (MS) 2.24%, and Amazon 4.57%. The Philadelphia Semiconductor Index declined 0.54%, while Micron rose 3.2% and SK hynix ADRs gained 2.56%.
Matt Miskin, co-chief investment strategist at Manulife John Hancock Investments, told Reuters, "Oil prices rising this fast poses significant risks to the macroeconomy and markets," adding, "Low unemployment will pressure the Fed to focus on curbing inflation."
